Rystad Sees ‘Very Promising Year’ for Shale

Oil and gas consulting and business intelligence data firm Rystad Energy sees “a very promising year” for shale oil producers, analysts at the firm’s North America shale webinar said recently.

“We believe that not everyone actually realizes how much oil the US is already producing,” said Artem Abramov, vice president of analysis in North America shale research at Rystad. Based on the most recent data, he said, “We think the 10-million-barrels-a-day mark has already been reached and it happened in late 2017.”

Abramov said that the US shale industry in 2018 faced “very limited bottlenecks on the well economics side and [with] efficiency” but noted that service industry bottlenecks “where the situation in many segments remains very tight” could impose some constraints.

He said United States shale producers face a base decline rate of 3.1 million B/D from existing wells over the next 3 years but that the industry will likely be able at least to offset that decline.

Activity Expansion

“Continuous activity expansion will lead to 1.4 million barrels a day of production additions in both 2018 and 2019,” Abramov said. Only minimal growth beyond that will be required to offset the decline rate, and “a majority of operators are considering expanding their rig counts this year,” he said.

While Rystad does not expect significant bottlenecks to emerge in takeaway capacity for the Permian Basin in west Texas and eastern New Mexico, the situation will need to be monitored. Takeaway capacity “will remain fairly tight in the next 3 years” and could place difficult demands on rail shipment in some parts of the Permian, he said. “But still, if all announced pipelines come on line as scheduled, then Permian Basin production can grow in line with our base-case forecasts.”

The planned 730-mile EPIC crude oil pipeline from basin oil fields to Corpus Christi, Texas, will need to stay on schedule for opening in 2019. “If EPIC is delayed, then we might see quite significant bottlenecks, and [it would] slow down growth from the Permian Basin production,” Abramov said. “So it is absolutely mandatory.”

Noncore Production To Grow

He said that with the recovery in oil prices, additional US shale oil production from noncore areas will pick up—much of it development activity that was halted when prices collapsed in 2014—and newer plays will also emerge.

Ryan Carbrey, senior vice president of shale research at Rystad, pointed to potential bottlenecks in the services sector that could restrain shale oil production growth. In particular, he cited the pressure pumping, fracturing, and proppant markets.

Attrition in the fracturing equipment inventory, during the course of the industry downturn, has led to less equipment being available, while the turnaround time for equipment orders has lengthened, Carbrey said. Additionally, uncertainty over the strength of the recovery has made service companies wary of adding equipment to their fleets, and fracturing crew members laid off in the downturn are showing some reluctance to return to the industry, he said.

Continued Sand Market Expansion

Increased proppant loading has led to fracturing sand being one of the few industry growth areas relative to predownturn 2014 levels.

“When we break it down into the finer grades of sand vs. the coarse grades, we’re starting to see a lot of tightness in the market as companies have shifted over to using finer grades,” Carbrey said.

New sand mines coming on line in the Permian Basin will help to meet the growing market demand, but “trucking is the biggest bottleneck” and road issues will be challenging, he said.

Will Road Capacity Be Enough?

“Is there going to be enough road capacity to actually move the sand from mine gate to wellsite?” Carbrey said. “Then the labor shortage ... the number of frac sand truck drivers that are going to be needed is going to increase dramatically.”

These will continue to be issues over the next several years. “By 2020, we think demand for frac sand is going to more than double [from] where we were in 2017,” he said. “And then, over time as we get to that 2020 level, are there going to be any infrastructure problems [in the Permian Basin] dealing with 3,600 frac sand trucks on the road per day?”

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